When is Refinancing Worth it?

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Have you ever heard the pearl of wisdom that states you should only refinance if the new interest rate will be at least 2 points below your current one? That may have been valid a while back, but with refinancing dropping in cost over the last few years, it's a good time to consider a new mortgage loan! Refinancing has a variety of advantages that will often make it worth the up-front expenditure several times over.

Advantages

You could be able to bring down your interest rate (sometimes substantially) and reduce your monthly payment amount with your refinanced mortgage. You might also have the ability to "cash out" a portion of the built-up equity in your residence, that you will be able use to consolidate debts, make home improvements, or finance a vacation. You could be able to refinance into a shorter-term mortgage program, enabling you to build up your equity quicker.

Expenses and Fees

Of course, you'll have some fees and expenses during your process of refinancing. You'll pay the same types of expenses and fees as with your existing mortgage. Included in the list might be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Doing the Math

You might consider paying points to reduce your interest rate. Your savings on the life of the mortgage loan could be substantial if you've paid up front about three percent of the new loan balance. You may have heard that points can be tax deductible, but as tax regulations can be ever-changing, please consult a tax professional before considering this in your calculations.

An additional cost that a borrower might take into account is that a reduced interest rate will lower the interest amount you'll deduct on your federal income taxes. We can help you do the math! Call us at 701.222.0100.

All things considered, for most people the total of initial costs to refinance are paid back soon in savings each month. We'll help you determine what mortgage loan program is best for you, considering your cash on hand, how likely you are to sell your home in the next few years, and what effect refinancing may have on your taxes. Call us at 701.222.0100 to get started.

Curious about refinancing your home? Call us: 701.222.0100.

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